How many ways can borrowers vanquish lenders with a statute of limitations defense? A new case finds another, exposing an understandable attempt to save the day as ineffectual. [Bank of New York Mellon v. Craig, 169 A.D.3d 627, 93 N.Y.S.3d 425 (2d Dept. 2019).]
Here is the problem that needed to be overcome. When a mortgage is accelerated (be that by the filing of the action or the sending of an effective acceleration letter) and if that action is later dismissed, the dismissal does not also take with it the acceleration. That is say, the acceleration survives. One can argue about that; it seems that if the beginning of a foreclosure creates an acceleration, if the foreclosure goes away, so too should that acceleration. But it simply is not so and lenders run afoul of this principle far too often.
So in this case the facts, until we get to the end, are typical of lenders’ statute of limitations dilemmas. Very briefly, a foreclosure was begun in April 2008. In November 2010, the court directed dismissal of the action with prejudice unless the lender filed a certain then required attorney affidavit within 60 days. The lender chose instead to obtain a stipulation signed by the borrower to discontinue the action without prejudice.
While that removed the issue of obtaining that affidavit (which apparently the lender did not wish to confront), it also meant that they needed to start the action anew with some dispatch. But that didn’t happen. The new action was not initiated until December 2015. Aware that the statute of limitations is six years, that started to run with the first action in April 2008 and therefore the statute of limitations had expired. (If the lender does not refute the statute of limitations problem, of course the borrower can keep all the money loaned to it and walk away happy.)
The new foreclosure was met by borrower’s motion to dismiss based upon the running of the statute of limitations. The plaintiff argued that the stipulation had caused the acceleration to dissipate. The court confirmed the usual principle that a lender may indeed revoke its acceleration, that is, its election to accelerate, but this must done by an affirmative act of revocation occurring during the six year statute of limitations period after initiation of that first foreclosure action.
This then led to the question of whether the stipulation was a revocation of the election to accelerate. One can appreciate why the lender thought it was so, but the court disagreed and that is the upshot of all this. The court ruled that the stipulation of discontinuance did not, by itself, constitute an affirmative act to revoke the acceleration, because the stipulation was silent on the issue of the election to accelerate and did not otherwise demonstrate that the plaintiff would accept installment payments from the borrower.
So what is the lesson? When encountering this type of situation, which sadly is not so uncommon, if a stipulation will be the methodology to dispose of the initial foreclosure (and unless the lender is certain that it can begin the action very quickly) it must be recognized that a stipulation by itself does not vitiate acceleration. Rather, it will need to recite that the acceleration is withdrawn and/or that installment payments are being accepted from the borrower, the latter then starting the statute of limitations running anew via partial payments.
This is an important distinction of which lenders should be aware.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.